Hawai‘i Convention Center: Facility is finding its footing after years of subpar results

The Hawai‘i Convention Center is on track to achieve its highest gross revenue and its lowest net loss since opening in 1998.

But tourism officials acknowledge it still has further to go.

Teri Orton, who was named general manager of the convention center in December 2013, said the 1.1 million-square-foot facility expects to take in nearly $13.4 million in gross revenue by year’s end. It also is forecast to cut its net loss to just under $1.5 million from the $3.5 million deficit that it has averaged for the last five years. At the same time, the center is expected to see its 2015 gross expenses fall to $14.8 million.

If realized, the changes would increase the center’s 2015 gross revenue by 4.6 percent over the $12.8 million that it took in last year. Its gross expenses would drop 1.3 percent from the $15 million that the center accumulated in 2014 and its net loss would fall 28.6 percent from 2014’s $2.1 million deficit.

“We are so pleased with our results. We have far exceeded my expectations and our goals,” Orton said. “We will end 2015 on a good note and look forward to a great year in 2016 and beyond.”

The results are undoubtedly an improvement. Still, they mean that while Los Angeles-based AEG Facilities is doing a good job shrinking losses, it has not yet succeeded in making the convention center profitable. The company took over management of the center Jan. 1, 2014, after the Hawai‘i Tourism Authority sought new leadership for what had always been an underperforming asset.

During the controversial planning phase for the center, taxpayers were promised that by 2008 it would draw up to 430,000 visitors a year and generate $1.9 billion in visitor spending. But at its 15-year point, under its previous operator, SMG Hawaii, the center was still bringing in less than half of the anticipated revenue and routinely falling short of expectations to fill Hawaii hotel rooms with high-spending business visitors. AEG’s main mission has been to increase group arrivals as well as revenue, which is needed to help retire the $327 million that the tourism authority still owes the state in principal and future interest payments on the bond that built the center.

Part of AEG’s recent headway is due to a rebounding meetings, convention and incentive market. SMG Hawaii had suffered through the uncertainty of 9/11 and the deep trough of the 2008-2009 Great Recession, which severely impacted group travel. Through September, the state welcomed 370,684 of these group travelers — an improvement of 9.4 percent over the prior year. Incentive travelers, who are more apt to book closer to date, grew 25 percent to 135,081. While group visitor arrivals are improving, they still represent only 5.7 percent of the total 6.5 million visitors who came to Hawaii during the first nine months of the year.

“While it’s great that the convention center is hitting goals, I think there’s still a ways to go. When it opened, we envisioned it serving as a catalyst to help us reach a goal of 25 percent group business,” said Keith Vieira, principal of KV &Associates Hospitality Consulting and a former HTA board member. “It’s important that we continue to grow the business mix because in Hawaii we don’t have enough room to keep growing visitors. We have to grow revenues. Business travelers are desired because they tend to book early, creating a base of business that sets the tone for pricing. They also tend to be high-performance individuals who are great for the leisure market when they come back as lifelong customers.”

Vieira said group travelers typically are high-yielding guests because of the money that they spend on their events. They also have a tendency to invite friends and family members to accompany them and to book pre- and post-trips.

The number of center events and occupancy are expected to drop slightly in 2015. Orton said 2015 occupancy is forecast to fall to 31 percent, from the 32 percent attained in 2014. The center also is expected to see its event count fall to 176 this year from last year’s 182. Despite the decreases, Orton said the center is helping to fill more hotel rooms than anticipated.

Through October, Orton said the convention center is within 51 percent of its year-end goal to book 202,550 future hotel room nights — or the number of nights hotel rooms are booked by guests attending convention center events. She said center staff are working to convert another 153,758 of its tentative bookings into actual business. Since most signings for future events take place at year’s end, Orton is optimistic that her team will attain 258,433 room nights in 2015, coming in at 128 percent of the target goal that HTA envisioned.

Orton said fiscal prudence and better performance, especially from the food and beverage sector, also are helping the center capitalize on group business spending. The center is expected to keep 40 percent of every food and beverage dollar in 2015 compared to the 38 percent that it kept in 2014.

“I attribute the gains to the staff really watching expenses and payroll,” Orton said. “Most convention centers across the country attain flow-throughs under 15 percent.”

As a result, the center’s food and beverage revenue for 2015 is anticipated to grow to just over $9 million, which would be a 2.3 percent gain from the $8.8 million realized in 2014. In 2015, the center is expected to achieve a food and beverage income of $3.6 million, which is 5.8 percent higher than the $3.4 million that it collected in 2014. At the same time, food and beverage expenses were expected to drop by 5.4 percent from 2014 to just over $5.4 million in 2015.

“We’re moving in the right direction, but we still have a ways to go. On average, occupancy for a successful convention center should be between 40 and 60 percent,” Orton said. “Because booking is typically five to 19 years out, we can’t substantially impact occupancy for 2016, 2017, and 2018 unless we get last-minute bookings. We’ll have a stronger impact in moving the needle over the next five years.”

One way that Orton wants to do that is to build more corporate meetings, which tend to book closer to date and create more demand for sporting events. After a recent trip to the Teams 2015 trade show in Las Vegas, Orton is convinced Hawaii could build a strong market for sports activities like volleyball and basketball tournaments for middle schoolers, high schoolers and adults.

“We had 40 appointments in three days,” she said. “There’s tremendous interest in Hawaii. The only issue is the cost of shipping the courts.”

Orton is researching how to outfit the convention’s center exhibition halls with temporary courts and store them during the offseason.

“I think we could fit roughly 30 to 35 courts in our exhibition halls,” she said. “I’d have to get it approved as a capital improvement expense for the building. It would cost about half a million (dollars), but we could make that up with one multiyear event.”

HTA Chief Operating Officer Randy Baldemor said the agency wants AEG to continue exploring different opportunities to maximize use of the convention center.

“We’d like to get the occupancy up above 50 percent, but the sky’s the limit,” he said. “We’ve been encouraging AEG to leverage its extensive networks worldwide and its base of contacts in many sectors to see how they can benefit the state of Hawaii. We want to go beyond the traditional convention business.”

HTA board chairman Rick Fried said members are much more satisfied with the center’s performance under AEG, which has made significant improvements.

“We’ve cut the deficit by an enormous percentage and we are adding a very significant amount to the Hawaii tax base,” he said. “The perception that the convention center has been a white elephant if you look closely is inappropriate. It’s almost break even and when you look at the tax revenue being generated, it’s pretty impressive.”

Orton estimates that through October the center has generated $274 million in revenue and taxes for the state.

“For every dollar spent by (the convention center) we returned $20 to the state,” she said.